Representative Nancy Pelosi (D. Ca.) made that statement several months ago. Now, Presidential Press Secretary, Jay Carney, in a recent press conference, is jumping on the same band wagon. The theory goes that if someone who is unemployed receives a payment from the government, they will spend it, thus boosting the economy and creating jobs. Let’s analyze that.
Employers pay a tax to the government, known as FUTA, to “pay for” unemployment insurance. It is a percentage of their total payroll. And, for the purpose of this exercise, we will assume that the employer pays $.05. Let’s call the employer “A”.
“B” will be the person receiving unemployment insurance, and “B” will receive $1.00.
The missing $.95 between what “A” pays to the government , and what “B” receives from the government must be paid by “C”. “C” is the taxpayer.
In my example, “A” and “C” collectively have lost $1.00 in tax payments, and “B” has received $1.00 in unemployment insurance.
Perhaps Ms. Pelosi or Mr. Carney could explain why jobs are created when “B” spends that dollar, as opposed to “A” and “C” collectively.
Isn’t it the same $1.00 no matter who is spending it?